Market Insight 10/12/18

Remeber earlier this year?


(SPY, 10/11/18)


There were two major falls during earlier this year and every experts were talking about the correction and possibility of entering into a recession. Oh well, after in just 6 months, SPY has broken into a new high.

How are the world going to have a financial crisis when everyone is looking for one? That is not a financial crisis nor recession, but a correction. Isn’t it?

The usuales of the usual process works in every sessions except financial crisis

  • Creating rooms 1
    Market sentiment is extremely bullish, making calls too expensive and puts undervalued.
  • Removing the bubble 1
    Market would punish leveraged/overextended/unconfident buyers.
  • Doing nothing 1
    Market realizes that the actions were overdone and stays within boxed area.
  • Creating rooms 2
    Market sentiment is extremely bearish, making puts too expensive and calls undervalued.
  • Removing the bubble. 2
    Market would punish leveraged/overextended/unconfident sellers.
  • Doing nothing 2
    Market realizes that the actions were overdone and stays within boxed area.
  • Heads back to ‘Creating rooms’
  • Through numerous cycles of overboughts and oversolds, market correctly adjusts its position.

Currently, the market sentiment has become extremely bearish. Not only the world is worried about the geopolitical issues but also slowing down of world economy. IMF has just issued a statmenet recently that the world economic growth rate is reduced except the US. Remember? in 2008 financial crisis, Lehmans was the trigger.

  • Investors should not be panicking.
  • Investors should not try to forsee the unforseen events.
  • Investors should not leverage beyond their control.
  • Investors should not think of the past crisis and put themselves into that miserable position. It has not happened ‘YET’.

If the investor is long.

  • Look over the portfolio
  • See if there were any overextention
  • Reduce leverages to minimize the risk
  • Be confident

If the investor is short

  • Do enjoy the volatility
  • Do not overextend